The U.S. Economy’s Ugly First Quarter Is About to Look a Lot Worse

U.S. economic growth for the first quarter is expected to be revised down Friday, partly because the trade deficit was far wider than previously estimated, as imports surged.

JOE RAEDLE/GETTY IMAGES

The U.S. economy very likely contracted in the first three months of the year. Friday’s GDP report will show just how ugly things got.

The Commerce Department estimated last month that gross domestic product—the broadest sum of goods and services produced across the U.S.--grew at a paltry 0.2% annual pace in the first quarter. But a batch of data since then suggests output was far weaker, and the agency will release a revised estimate Friday at 8:30 a.m. ET.

The best guess of economists surveyed by The Wall Street Journal is that GDP fell at a 1% annual pace from January through March. That would mark the third time since the recession ended in mid-2009 that the economy shrank during a quarter.

Friday’s revision is likely to be due to two main factors. Recent figures show that the trade deficit at the end of the quarter was far wider than previously estimated, as imports surged while exports grew only modestly in March. At the same time, U.S. businesses spent less on restocking goods than the government previously estimated.

Even if the report shows a contraction, don’t expect much talk—yet—about the economy dipping into a recession. The first quarter featured several temporary setbacks, including harsh winter weather and a labor dispute that disrupted the flow of goods at West Coast ports. Recent data suggest a pickup in activity and continued steady hiring by employers in the second quarter. Most economists believe the economy is poised to rebound this spring and summer much as it did last year, when the economy contracted at a 2.1% pace in the first quarter but expanded 4.6% and 5% in the subsequent periods.

For what it’s worth, economists generally define a recession as two straight quarters of contracting GDP. The National Bureau of Economic Research, the semi-official arbiter of U.S. recessions, takes into account a broader range of indicators than simply the GDP report.

That said, another quarterly contraction would suggest the latest economic expansion is fundamentally weaker than its predecessors.